1. Types of tax
Currently, the Russian legislation does not foresee any special taxes with regard to inheritance or donation. The tax on the assets transferred through inheritance or donation that previously existed, was abolished effective January 2006.
Alongside the abolishment of inheritance and gift tax, personal income tax applies in certain instances where individuals receive gifts.
In certain cases, individuals receiving income through inheritance may also be subject to personal income tax as a regular taxable income.
1.1 Inheritance tax
There is no inheritance tax in Russia.
1.2 Gift tax
There is no gift tax in Russia, although in certain cases personal income tax may be levied.
1.3 Real estate transfer tax
There is no real estate transfer tax in Russia, although in certain cases personal income tax may be levied.
1.4 Endowment tax
There is no endowment tax in Russia.
1.5 Transfer duty
There is no transfer duty in Russia.
1.6 Net wealth tax
There is no net wealth tax in Russia.
However, there have been discussions with respect to changes in taxation of wealth. The first draft of the changes was introduced in May 2012 in the Tax Politics of Russia for 2013 and the intentions of the Russian authorities to continue this tendency were announced in the Tax Politics of Russia for 2014 as well. These changes do not affect the wealth tax as it exists in most European Union (EU) countries, but rather they introduce a new concept for the taxation of prestige consumption.
Effective 1 January 2015, Tax Code of amendments came into force. According to these amendments the tax on immovable property will be calculated based on the cadastral value of such property. Property of a higher value will be taxed at a higher rate.
Beginning 1 January 2014, the tax on expensive vehicles was calculated by multiplying coefficients. The coefficient is based on the vehicle’s cost.
2. Who is liable?
Personal taxation in Russia is defined based on the tax residency status of individuals.
Russian tax residency is determined by the number of days actually spent in Russia. Russian tax residents are individuals who spend at least 183 days in Russia within a 12-month consecutive period, while Russian tax nonresidents are those who spend fewer than 183 days in Russia.
Although a rolling 12-month period was established in the Russian Tax Code, the position of the Ministry of Finance expressed in a number of letters is that presence in consecutive 12-month periods should be used only by tax withholding agents and individual taxpayers should determine their residency status on the basis of physical presence in a calendar year (which is a tax period for personal income tax purposes). Russian tax authorities have adopted and used this approach in practice.
The Russian Tax Code does not provide a definition of “Russian days” for the purposes of the 183-day test. The current position of the Ministry of Finance and the Russian tax authorities is similar in terms of treating both days of arrival and departure as days of presence in Russia. The Ministry of Finance has issued many clarifying letters to confirm this, while tax authorities have adopted and used this in practice.
Russian tax residents are taxable in Russia on their worldwide income, generally, at a 13% tax rate (including, but not limited to, gifts in various forms and inheritance in special cases). For some types of income, such as dividends and material benefit, different tax rates are applied.
Russian tax nonresidents are taxable only on their Russian source of income at a 30% tax rate on most types of taxable income (including, but not limited to, income earned in Russia).
Sourcing of income
The Russian Tax Code is not explicit in terms of determination under which circumstances a gift constitutes a Russian or non-Russian source income. In the absence of clear guidelines, the Russian tax authorities may apply various criteria in order to determine sourcing, including the location (or tax residency) of the donor, the location of the property, place of conclusion/execution of the gift contract as well as other similar criteria. Potentially this may result in additional tax burden (especially for recipients — tax nonresidents) or double taxation in cross-border cases.
Furthermore, as far as double taxation matters are concerned, income taxes and inheritance taxes are usually addressed in separate treaties and estate tax treaties often cover estate and gift taxes. While Russia has effective double-tax treaties with most countries, it has not entered in any estate tax treaty. Since income received through inheritance or donation is considered as regular taxable income of heir/recipient in Russia (if not exempt), double tax treaties between Russia and countries imposing inheritance or gift taxes may not serve for the purposes of avoidance of double taxation with respect to this income. Therefore, potential double taxation may arise if the foreign jurisdiction imposes gift or inheritance taxes on such transfer of assets (by donation or inheritance).
4. Exemptions and reliefs
The Russian Tax Code establishes the following exemptions with regard to taxation of the income received through inheritance or donation.
Income received from individuals by way of an inheritance is generally exempt from taxation in Russia with exception of royalties paid to the heirs (successors) of authors of works of science, literature and art and of discoveries, inventions and industrial samples.
Income irrespective of the form, i.e., both in cash and in-kind, received from individuals through a gift is generally exempt from taxation in Russia, except for immovable property, motor vehicles, shares, stakes and participatory interests, unless the donor and the recipient are members of a family and/or close relatives in accordance with the Russian Family Code, i.e., spouses, parents and children, including adoptive parents and adopted children, grandfather, grandmother and grandchildren, full siblings and half siblings (having a common father or mother).
Income irrespective of the form, i.e., in cash and in-kind, received from organizations and/or individual entrepreneurs is generally subject to personal taxation in Russia in excess of RUB4,000. The tax due may be subject to withholding at source if the organization (or individual entrepreneur) is qualified as a tax agent under the Russian tax law.
5. Filing procedures
Russian personal income tax is paid either via withholding at source or via filing of a Russian personal income tax return to the tax authorities.
The personal income tax return is submitted to the tax authorities on an annual basis no later than 30 April of the year following to the year-end, with an exception for departing expatriates, who must file the tax return no later than one month prior to their final departure.
The corresponding tax due must be paid no later than 15 July of the year following the year-end. Departing expatriates pay tax within 15 days of the departure tax return filing.
6. Assessments and valuations
Since the income received through inheritance or donation is considered as regular taxable income (if not exempt from taxation as described above), the general valuation rules established for the personal income tax purposes are to be applied.
In general, for income in kind that an individual receives through inheritance or donation, taxable base for the personal income tax purposes is defined based on the fair market value of received property.
7. Trusts, foundations and private purpose funds
As of 1 January 2015, the existing trusts, foundations and private purpose funds became subject to reporting in accordance with the new CFC legislation in Russia. There are notification requirements for the settlors, controlling parties (e.g. protector) and beneficiaries who are Russian tax residents on the participation in a foreign structure and potentially on existence of CFC should they be considered as controlling parties to the structure.
Should the latter be the case, profit of the trusts, foundations and private purpose funds may be subject to tax at the level of controlling persons – Russian tax residents at the portion of their entitlement for the profit share.
Moreover, in certain cases profit (loss) of a CFC shall be understood to mean the amount of that CFC’s profit (loss) which has been calculated according to the Russian Tax Code.
In general, the concept of trusts does not exist in the Russian civil and tax legislation. In practice, for personal income tax
purposes, income received from trusts (trust distributions) is most likely treated as ordinary income received from a foreign source and taxable at respective rates in Russia.
With regard to estate taxes, there are no specific rules in Russia.
9. Life insurance
With regard to estate taxes, there are no specific rules in Russia.
10. Civil law on succession
The main Russian pieces of legislation related to inheritance are the Civil Code of the Russian Federation and the Fundamental Legislation of the Russian Federation on Notarial System.
Russian inheritance laws cover everyone who is domiciled (i.e., has his or her usual place of living, but not necessarily his or her nationality) in the Russian Federation and also cover everyone including foreigners who own property in the Russian Federation.
There are two types of inheritance: testamentary inheritance (when there is a will of a deceased) and intestate inheritance (in the absence of a will of a deceased and in other statutory cases).
The deceased’s estate incorporates the items and other property the deceased owned as of the date of opening of the inheritance, including property rights and liabilities.
Rights and liabilities inseparable from the personality of the deceased (e.g., rights to alimony), personal incorporeal rights and other intangible assets are not included in the estate.
10.1 Forced heirship
Minor and disabled children of any deceased person domiciled in Russia, disabled spouse and parents, and any disabled dependants of the deceased must inherit at least one-half of the share each of them is entitled to inherit by law, irrespective of any testamentary provisions.
10.2 Matrimonial regimes and civil partnerships
The right of inheritance that the surviving spouse of the testator has by will or by law should not diminish the spouse’s right to the portion of property gained over a marriage and deemed a matrimonial property. The share of the deceased spouse in this property determined in compliance with the Russian Civil Code is viewed as a part of the estate and passes to the heirs in accordance with the Code-established rules.
If no provisions are made in prospect of death, a complex statutory order of intestate inheritance is applied to all persons covered by Russian inheritance law. The heirs-in-law (individuals only) include children of the deceased, his or her spouse and parents, brothers and sisters, other relatives and disabled dependants of the deceased. All of them are divided into eight priorities.
The heirs of each next category inherit if there are no heirs of the preceding categories or if all of them have refused inheritance.
The heirs in the higher priorities inherit statutory intestate shares preferentially to the heirs in the lower priorities. The sizes of these shares depend on the number of heirs involved in the inheritance. In the absence of heirs in law, then the estate is declared heirless and passes to the Russian Federation.
Main categories of heirs are as follows:
- First category heirs — children, spouse and parents of the testator.
- Second category heirs — full and half brothers and sisters of the testator, grandfather and grandmother either on the side of the father or on the side of the mother.
- Third category heirs — full and half brothers and sisters of the parents of the testator (uncles and aunts of the testator).
- Next category heirs (fourth to eighth priorities) — the testator’s relatives of the third, fourth and fifth degree of kinship who do not qualify as heirs of the preceding categories, stepchildren, stepparents and disabled dependants of the testator.
11. Estate tax treaties
There are currently no estate tax treaties between the Russian Federation and other countries.